I don’t want this to sound like a gimmick or some slick way to raise money from gullible elderly church members. That is not what a Charitable Remainder Trust is. The Charitable Remainder Trust can be an wonderful part of a person’s retirement/estate plan. What makes it so wonderful? Here’s a list:
Guaranteed Income for Life: This will supplement social security and pension income. Rule of thumb is that you will receive 5% back on any assets you entrust…for life…and it will likely grow.
Protection of Assets: No one wants to see the financial assets that they accumulate during their lifetime dwindle away paying for nursing home care. These Trusts are irrevocable which protects them legally.
Lowering your Taxes: I don’t understand all this part, but it’s pretty clear that you will be lowering your tax bill considerably.
Supporting the Charities you Love: Many people fail to do any estate planning. After you pass, the assets of the Trust will go to benefit the charities of your choice.
A lot of churches reimburse mileage for their pastor. Pastors can put on quite a few miles…especially if they serve multiple churches. Mileage can actually be a major part of the budget. One of the issues is knowing the difference between commuting miles and business miles because commuting is not reimbursable.
I took my info from New Clergy Training on Accountable Reimbursements to help teach on this one issue. Why is this important? 1)It protects the church from paying for mileage they shouldn’t. 2)It protects the pastor from adverse tax consequences as reimbursing commuting miles is taxable. 3)It prevents hard feelings from misunderstandings.
If you’re a new church treasurer, and, after three months, you finally are feeling comfortable cutting paychecks for your pastor and lay employees. Then the IRS comes in demanding information on the Form 941. Does a church really have to fill out this form? That depends.
The short answer is, if you just have a pastor and are not withholding Federal Income Tax, you do not have to do the Form 941. If you do have to file the Form 941, it’s not horrible. I walk you through it. I’m mainly focusing on small and medium-sized churches that don’t have to monthly remit payroll withholdings. For larger churches, chances are you have payroll software that fills this out for you.
Like I said in a previous post, payroll is the most intimidating part of being a church treasurer. What makes it worse is that most churches just a handful of employees…maybe a part-time custodian and secretary. It just doesn’t make financial sense to shell out much for payroll software when your payroll is minimal. Without payroll software, how do you run payroll manually…especially when you have a lay employee or two.
Don’t worry though. While payroll for lay folks is painful, it’s not impossible. I show you how to calculate the withholdings and share with you a spreadsheet like the one I’ve used in the past for this purpose.
When I became a church treasurer, the scariest part of the job was payroll. I was a CPA. I worked as an auditor for the State of North Dakotas. I knew about taxes and payroll liabilities and all that fun stuff, but I’d never actually cut a payroll check before. To make matters worse, no university trains people on clergy taxes. I was completely unprepared for cutting my pastors paycheck.
I’m not alone. I’ve helped train in numerous church treasurers and this is almost always the biggest concern. What I’ve found out is that cutting a paycheck for your pastor is less complex than cutting a paycheck for a lay employee. You need to understand the Housing Exclusion and how your payroll software (if you use any) handles that. Once you get that, it’s smooth sailing…no FICA…usually no Federal Income Tax Withholding.
I’m not trying to dissuade you from having a tax professional prepare your W-2’s, but, if you are up to the challenge, here’s how to do it. This is mainly aimed at clergy in the Dakotas UMC, but I bet you could translate this into Lutheran or Presbyterian or Baptist or even Non-Denominational.
Here’s the confusing thing: a Pastor is an Employee according to the IRS and Self-Employed according to the Social Security Administration. That means you leave the social security and medicare parts blank. You also have to treat housing exclusions and housing allowances differently as the IRS doesn’t consider that to be taxable…although the SSA does.
What’s the worst thing that could happen if I don’t keep the IRS in mind when issuing Giving Statements or something to acknowledge gifts? Well…the IRS could disallow the donors charitable tax deduction which would lead them to have to pay more taxes. This would probably lead to a ticked off donor who will likely share this with other donors. You’ve basically discouraged anyone from wanting to give too generously to your church.
It really isn’t that hard to keep the IRS happy. All you need to do is properly document the gift (what did they give, who did they give it too, when did they give it) and include a simple statement that the donor didn’t receive any goods or services in exchange for the gift except for intangible religious benefits. You can sneak these element in and still have a nice “Thank you.”